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I had a lot going on in the past year, so instead of filing my 2021 taxes on time, I paid what I thought was likely to be in excess of what I would owe. I did this before the filing deadline.

I just filed the tax return and went online to check my account. Unexpectedly, this year broke the trend from many years past and my amount owing was much, much greater. I ended up having to pay the late penalty and also monthly arrears. I accept that these are the rules.

What I find really suspicious, however, is that the money paid up-front isn't considered to have lessened the balance owing as it isn't "claimed" by CRA until after filing. This is money paid to CRA well before the filing deadline, which they have in their possession. Since the late penalty and monthly arrears is based on the balance owing, they get to charge a lot more.

Has anyone else experienced this? What are some explanations for this?

On a separate note, even if I accept the fact that the paid monies aren't applied to my balance until the late date of filing, the late penalty seems to be approximately 15% of the net tax instead 5% (the stated rate).

Has anyone else experienced this? What are some explanations for this?

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  • You should most likely get credit for the time that the funds had been sent. How did you claim that payment on your return? Did you specify the date and time? Did the CRA already require you to make quarterly instalments, in which case, payment by Apr 30 would not have been in time to meet their expectation of early payment? Dec 19, 2022 at 13:28
  • Sorry, I'm unclear on your meaning re. me claiming payment. Their account statement says that I credited them certain amounts on 2021-04-01 and 2022-04-11. The first payment was just excess above the net tax for 2020, but I wanted some margin rather than waiting for the NOA. It was actually paid on 2021-03-30 (23h14). Dec 19, 2022 at 14:57
  • According to the account statement yesterday, however, the 2021-04-01 payment was "claimed" by them when I filed my 2021 return on 2022-12-18 (yesterday). They didn't apply it to my 2021 net tax until yesterday. Neither did they apply the 2022-04-11 payment, which was paid to take care of 2021 taxes and was well in excess of my previous years' net tax owings. Dec 19, 2022 at 14:57
  • I'm also unclear on your comment about specifying the date and time of these payments. I don't recall anywhere in the payment process where I get to specify a date and time. I simply made payments on the aforementioned dates. On your other question, CRA did not require that I pay installments for the 2021 tax year. Dec 19, 2022 at 14:57

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Most likely you can rectify this situation.

First, call the CRA's public number - might have to wait a while on hold - oh well! See their number here: 1-800-959-8281 https://www.canada.ca/en/revenue-agency/services/payments-cra/individual-payments/income-tax-instalments/claim-amounts-tax-return.html

Ask the agent when they see the payment on your account as having been received. Then ask whether the payment was initially applied to 2021. Most likely the payment was received, but wasn't originally applied to your 2021 tax year, perhaps just sitting in an 'unapplied' account. They are not likely to immediately resolve this for you on the phone, but they actually have the authority to do so, possibly. While you're on the phone, ask for help in setting up your CRA Myaccount - this will give you online access to your balance owed etc., and will be helpful for you in future years.

If they don't solve the problem for you over the phone, you will need to write a kind letter to the CRA requesting that they acknowledge the timing of your initial payment, and reduce their calculated penalty interest amount by the correct proportion. Include all relevant info in your letter, including attachments of bank transaction timing, etc., and a simple table showing the calculation of how you would personally calculate the interest amount. Again - be kind - you are basically asking someone to do a favour for you, saying that your intention was to make a payment to reflect on time, but that you were not expecting the total balance to be so high, etc. etc. etc.. An individual CRA agent has a fair amount of leeway, in terms of whether they would grant your request. You are basically asking for leniency because of your attempted 'good faith' effort to make the payment on time.

When deciding whether this is worth the effort, look at the actual amount that might change - [edited after re-reading your question] - since you are being dinged for the late filing penalty of 5% + 1% extra on each extra month of late payment, this process is highly likely to be worth it for you.

As a side note, I think you should reflect on whether you are putting your energy to solving this problem, or shouting into the void. The framing of your question is basically "Why is the system so unfair?" [which believe me, I sympathize with], when you could more pragmatically just ask "How can I solve my problem navigating the [terrible] system?" While filing taxes is aggravating, you are making things harder on yourself by not tackling it in the required timeframe. Be aware that you are likely to face deeper scrutiny and possibly penalty rates as well, if you fall into a similar situation next year.

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  • Thanks, Grade 'Eh' Bacon. I will call. I found that they did apply the 1st of my two pre-payments (2021-04-01), buried in the downloaded data from CRA, and it's only the 2nd one (2022-04-11) that wasn't applied. I also went through the penalty and arrears calculations and they are completely discrepant in gross ways, even with proper daily compounding of monthly nominal interest for arrears. The total, however, is slightly less than my calculations, so nowithstanding the nonsensicality of the intermediate numbers, I'm just going to ask them for mercy. Dec 19, 2022 at 16:27
  • @user2153235 Okay it makes a lot more sense to me that your payment wasn't applied properly - 1st payment of the year, they quite likely know is related to that upcoming tax filing. Additional payment they are anticipating less and likely don't have an automated allocation rule for where to place those funds. Archaic, yes, but at least has some basis in reason [ie: are you making a payment for GST, or a back tax year, or what?] - this is where you need to use soft skills to grease the wheels - to correct a problem caused by an unthinking bureacracy. Dec 19, 2022 at 16:34
  • I find that odd. I would expect that what you owe CRA is just a running balance, regardless of what things gave rise to the amounts that you owe them. Payments would then simply reduce that single number (running balance owing). Very obvious why I didn't become an accountant. Dec 19, 2022 at 16:55
  • @user2153235 It matters because different types / years of tax balances would have different due dates and therefore different penalty calculations associated. The complexity would only matter in .01% of cases, and in a perfect world would be pretty easy to work the way you expect things to, but given that this is government we're talking about... Dec 19, 2022 at 18:15
  • Yeah, I guess. I mean, I'm familiar with government bureaucracy, but as far as which debt to service, it has always been the one that incurs the greatest marginal interest. But when you start introducing first costs like the 5% penalty, I can see how that makes a difference because you might want to service that amount owing even if another debt was incurring more cost per unit time. That's assuming that you can do so to avoid the late penalty, i.e., it isn't already late. Dec 20, 2022 at 2:08

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